Ease of doing business: Good show Narendra Modi govt but ground reality tells a different story

What does India’s jump in World Bank’s 2018 ‘doing business rankings’ actually mean for the country? On overall rankings, the country leapfrogged to enter the top 100 club this year, moving up by 30 ranks. The Narendra Modi government responded quickly to claim credit for the international approval, deploying Union finance minister Arun Jaitley to call a presser to share the good news. The Congress party dismissed the rankings saying it doesn’t reflect reality on the ground. Both reactions aren’t unexpected.

Beyond the political claims and counter-claims, let’s look at how did India move up so fast in World Bank rankings and what this jump will do for Indians on the ground. This improvement in rankings reflects certain important areas such as paying taxes (to 118 from 172 last year), getting credit (to 29 from 44) and bankruptcy proceedings (to 103 from 136). Of the 10 indicators considered, India has improved on eight, including the ones mentioned above. This has helped the overall rankings to go up by 30 notches.



The overall jump in rankings would thrill the stock markets for sure (the BSE Sensex is up 327.30 points or 0.99 percent at 10:41 AM today ) and put India in the spotlight in international economic discussion forums. India will be seen as a nation consistently progressing on structural reforms and the Modi government’s efforts to progress on the reform-path will be lauded.

Since it came to power in May 2014, the Modi government has executed a promising plan of action to bring in structural reforms. These are evident in the areas of subsidy reforms (through JAM trinity), stressed assets resolution in the banking sector (IBC), indirect tax reforms (GST), ease of doing business (online registrations and simpler processes).

The government deserves credit where it is due. Hence, if India has jumped 30 ranks up in the World bank list, a good part of the credit goes to Modi and his team. The World Bank has taken note of the coordinated mission mode of the Modi government. “There have been implementation efforts not only at the Centre level but also at state levels, and strong coordination between the ministries,” it said.

The other side

Rankings are, however, only indicators -- sometime misleading. The ground reality is different from what they indicate. It hasn’t factored in demonetisation impact on businesses and GST-related disruptions. Even in the case of the World Bank ranking pattern, there are important areas of concern that need to be discussed and debated. A closer look at the individual segment rankings also show that improvement in certain other critical areas is not up to expectations.

For instance, when it comes to starting business (read here), the ranking has slipped by one notch to 156 from 155 last year and trading across borders to 146 from 143 in the last year. India has also underperformed in the areas of registration of properties and enforcing of contracts. Despite all efforts to make doing business easy, why is it still difficult to start a new business and why is acquiring labour and securing permissions continuing concern for new investors? Also, why is it that private investment remains at record lows despite all this perceived improvement in the environment to do business?

Perhaps, the answer lies in the notably slow progress in areas such as land and labour reforms. Unless these are addressed, ground-level situation for businesses won't change. These problems are felt more by small entrepreneurs rather than deep-pocketed politically connected big corporations.

“The FM’s announcement that focus will be on making construction permit online is welcome. However, the report is indicative only and excludes many issues like labour laws, corruption, competition policies, trade policies etc. It can’t be viewed as panacea for all problems,” said Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises. Land and labour reforms cannot happen unless state governments fall in line and act in coordination with the Centre. Even now, these two reform areas are danger zones for any government, state or Centre, as politically powerful trade unions have a big say in these reforms. But with more states coming into the BJP’s fold, pushing politically sensitive reforms shouldn’t be hard for Modi.

As mentioned above, the bigger surprise was that the World bank did not consider the impact of demonetisation on businesses while compiling the rankings. Even though demonetisation was a one-off instance for India that does not figure in World Bank's parameters, this should have been factored in considering its impact. This exclusion raises questions on the basis of the ‘doing business’ rankings since both these economic exercises had significant impact on the businesses, both big and small. It is not quite clear why the international agency excluded note ban impact while doing the yearly assessment on India.

The bottomline is this: India’s remarkable jump in the World Bank list is indeed a booster dose for the economy at a time when the Modi government is facing criticism for its handling of the economy. But, there are questions remaining with respect to the actual business environment on ground. Here, lot more needs to be done to change things and elevate India to the stature of global manufacturing hub.

Updated Date: Nov 01, 2017 13:40 PM

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